COPPER Technical Analysis - COPPER Trading: 2015-10-16

Copper rebounds as supply rebalances

Copper prices are rebounding on output cuts by major producers. Declining capital expenditure plans for mining expansion also contribute to supply rebalancing. Will copper prices continue recovering on the backdrop of slowing global economic growth?

Copper prices have been rising from a six-year low in the last ten sessions as major producers Glencore Plc, Freeport-McMoRan Inc. and others announced output cuts. Glencore has said it will close copper mines in the Democratic Republic of Congo and Zambia accounting for about 2% of global supply. Citigroup report in September estimated more than 1.5 million metric tons of planned output has not been produced due to riots in Chile and droughts in Zambia and Papua New Guinea. The recent report by the bank provided further evidence of tightening copper supply as data indicated capital expenditures for copper mining expansion projects next year will fall to $11.1 billion, the lowest since 2007, and this year capital expenditures will be down about 50% from the 2012 high. Recent customs data from China were also supportive for copper prices as they showed China’s imports of copper rose 33% from previous month to 460,000 tons in September.

COPPER has been rising since the end of September. The price has breached above the wedge formation. Parabolic indicator gives a buy signal. The Donchian channel is tilted upward, indicating uptrend. The bars of RSI-Bars oscillator are rising within an upward channel, confirming the uptrend . The indicator is above 50 and hasn’t reached the overbought zone. We believe the bullish momentum will continue after the price closes above the last Bill Williams fractal high and upper Donchian boundary at 2.4358. A pending order to buy can be placed above that level. The stop loss can be placed below the last fractal low at 2.3173. After pending order placing, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not considered.